Press release

PwC: Global assets under management to exceed $100 trillion by 2020, with CAGR of nearly 12% for Middle East and Africa

Research from PwC predicts that global assets under management (AuM) will rise to around $101.7 trillion by 2020, from a 2012 total of $63.9 trillion. This represents a compound annual growth rate (CAGR) of nearly 6%.

The report, Asset Management 2020: A brave new world, also finds that assets under management in the SAAAME (South America, Asia, Africa, Middle East) economies are set to grow faster than in the developed world in the years leading up to 2020, creating new pools of assets that can potentially be tapped by the asset management (AM) industry. However, the majority of assets will still be concentrated in the US and Europe.

PwC predicts that assets under management (AuM) in the Middle East and Africa will rise to $1.5 trillion by 2020, from a 2012 total of $0.6 trillion. This represents a CAGR of nearly 12%.

AuM (assets under management) growth in the Middle East will be mainly driven by positive economic outlook, family businesses & entrepreneurship and the population demographics:

Diversifying economies, great investment opportunities and favourable regulation complemented by highlight events, Dubai Expo 2020 and Qatar FIFA World Cup 2022, will attract the capital inflow into the region

Family businesses in the ME (Middle East) are very powerful and influential, unlike other economies, 75% of the private sector activity is controlled by family businesses.The younger generation of these families consider themselves entrepreneurs as well as people who run SMEs

The overall population in the ME is young; with most people in their mid-career and more people entering employment than retiring shows the strong potential of pension fund growth.

Penetration of the AM industry in MENA is still low compared to global markets; mutual funds under management in 2012 was around 2.5% of market capitalization hence there is huge potential available to local and international players. It is worth identifying that MENA based high net worth individuals (HNWI) are moving their wealth back from developed markets to the region; AMs and private banks have doubled their share of assets in the past decade. Furthermore, PwC has seen interest from foreign private banks to set-up operations in the GCC following strong economic fundamentals.

Graham Hayward, Middle East Financial Services Leader, at PwC, said: “Amid unprecedented economic turmoil and regulatory change, most asset managers have not had time to bring the future into focus. But the industry stands on the precipice of a number of fundamental shifts that will shape the future of the asset management industry.

“Strong branding and investor trust in 2020 will only be achieved by those firms that avoid making mistakes that attract the ire of investors, regulators and policymakers. Asset managers must deliver the clear message that they deliver a positive social impact to investors and policymakers. The efforts required to satisfy investors and policymakers cannot be left to others.

“The coming years will bring the industry higher volumes of assets than ever before which places more responsibility on firms to manage these assets to the best of their collective ability. Asset managers must clearly outline the value they bring to customers while being fully transparent over fees and costs.”

Other findings:

MENA pension fund will reach close to $5 trillion by 2020

The local population of the GCC countries who work for government entities are offered great state-administered pension funds hence the 2011-2012 YoY growth was 9%-16%. Therefore PwC predicts pension fund assets will grow by 8.8% a year to reach $5.0 trillion by 2020 from a 2012 total of $2.4 trillion.

Globally, PwC predicts pension fund assets will grow by 6.6% a year to reach $56.5 trillion by 2020 from a 2012 total of $33.9 trillion.

Mass affluent (those with wealth between USD 100,000 and USD 1m) clients and high-net-worth-individuals (wealth of USD 1 million or more) in SAAAME regions are key drivers of growth. From more than $59 trillion and $52 trillion, respectively in 2012, assets owned by mass affluent and HNWI investors are expected to rise to more than $100 trillion and $76 trillion respectively by 2020. The growth is expected to be higher for the mass affluent sector (with a CAGR of 6.8%) than for HNWIs (4.9%). The single greatest contributor to this surge in mass affluent and HNWI assets is increasing SAAAME wealth. Mass affluent clients in SAAAME regions will, for instance, more than double their wealth between 2012 and 2020.

A more prominent role for SWFs in global capital markets…

The size of SWFs is rising fast and their presence in international capital markets is becoming more prominent. SWFs’ AuM are currently above $5 trillion and PwC predicts this figure will surge to nearly $9 trillion by 2020. SWFs based in the Middle East and Africa will grow the fastest, with Asia Pacific also seeing a rapid rise in SWF assets.

Growing demand for sharia compliant products…

Global data indicates that GCC AMs control over half of the global sharia compliant fund assets. In 2012, the global Sukuk issuance was valued at over $100 billion; Saudi Arabia and Bahrain were the main sharia fund management centres along with Malaysia. Since Islamic investors have a limited scope of products they can invest in, they look for access to other products such as mutual funds to diversify their portfolio.

Asset managers will need to respond…

PwC has identified six gamechangers that asset managers will have to analyse and address in order to capitalise on the opportunities this changing landscape presents:

Asset management moves centre stage: Asset management has long been in the shadows of its cousins in the banking and insurance industries. By 2020, it will have emerged definitively from their shadows.

Distribution is redrawn – regional and global platforms dominate: By 2020, four distinct regional fund distribution blocks will have formed which will allow products to be sold pan-regionally. These are: North Asia, South Asia, Latin America and Europe. As these blocks form and strengthen, they will develop regulatory and trade linkageswith each other, which will transform the way that asset managers view distribution channels.

Fee models are transformed: By 2020, virtually all major territories with distribution networks will have introduced regulation to better align interests for the end-customer, and most will be through some form of prohibition on having the asset manager allocate to distributors as evidenced in the UK’s Retail Distribution Review (RDR) and MiFID II. This will increase the pressures of transparency on asset managers and will have a substantial impact on the cost structure of the industry.

Alternatives become more mainstream, passives are core and ETFs proliferate: Traditional active management will continue to be the core of the industry as the rising tide of assets lifts all strategies and styles of management. But traditional active management will grow at a less rapid pace than passive and alternative strategies, and the overall proportion of actively managed traditional assets under management will shrink. PwC estimates that alternative assets will grow by some 9.3% a year between now and 2020, to reach $13 trillion.

A new breed of global managers: 2020 will see the emergence of a new breed of global managers, one with highly streamlined platforms, targeted solutions for the customer and a stronger and more trusted brand. These managers will not only emerge from the traditional fund complexes, but from among the ranks of large alternative firms, too.

Asset management enters the 21st century: Asset management operates within a relatively low-tech infrastructure. By 2020, technology will have become mission critical to drive customer engagement, data mining for information on clients and potential clients, operational efficiency and regulatory and tax reporting. At the same time, cyber risk will have become one of the key risks for the industry, ranking alongside operational, market and performance risk.

Bhavin Shah, Middle East based Asset Management expert, at PwC, said: “The response to the gamechangers we’ve identified will require considerable thought in order to create great strategy – there is no silver bullet to building the successful asset manager of 2020 and beyond.

“The successful asset managers of 2020 will have already started to shape their responses to some or all of these gamechangers. Those that develop coherent strategies and act with integrity towards clients are likely to build the brands that are not only successful in 2020, but that are still trusted in 2020.”